This issue describes a UK housing market that is diverse and fragmented, where conflicting signals on activity and price growth confuse those who are trying to put together the jigsaw puzzle of house price forecasts. Download here.

Given the diversity within the UK housing market, national measures of the performance rarely reflect regional or local market trends.

At the current time this is most noticeable when considering the difference between the performance of London and the rest of the UK housing market. Land Registry statistics suggest that prices in London have risen by around 7% in the past year leaving them 10% above their pre credit crunch level.

By contrast prices are below their pre-downturn level in all of the other regions. In the extreme case of the North East they are some 24% below their 2007 high.

London vs the UK

Indices such as the Nationwide house price index suggest a lesser, but still significant, polarisation in the market. This indicates that the ripple effect out of London has recently gathered some momentum, in the light of recent more widespread improvements in buyer sentiment.

London has outperformed the rest of the UK since the middle of 2005, effectively on both sides of the downturn. Over this time, prices in the capital have risen by a net 37% according the Nationwide index, whilst across the UK as a whole they have risen by just 8%.

This corresponds to a similar pattern of growth in the period after the previous downturn; with prices in London doubling in the period between 1994 and 2000, effectively growing at twice the rate of growth of the wider UK market.

However, in this period, markets in London’s hinterland were much quicker to pick up. Subsequently, the wider UK market played catch up, with price growth in less affluent markets being facilitated by more accessible mortgage debt.

Ripple overdue

As things currently stand, there is little doubt that the ripple effect from London is overdue, having taken longer than usual to breach the boundaries of the M25. Prices in other parts of the UK will start to outperform London at some point over the next five years, though not uniformly.

Fuelled by the wider pattern of economic recovery, the recovery beyond London is likely to be strongest within the South of England. More specifically because we expect a modest, but progressive, improvement in mortgage lending, the greatest impact is likely to be in higher value local markets with more in-built housing equity.

Consequently, the upper parts of the mainstream market are likely to drive the next phase of housing market recovery and price growth. This will favour areas such as Woking over Slough, Bath over Gloucester, Solihull over Coventry and York over Leeds.

The extent to which lower value sectors of the UK market will follow this lead, will be limited by the extent of ongoing constraints on mortgage lending. This means, even in a more widespread recovery, there will still be regional and local market divides.

Taken from
Residential Property Focus Q4 2013

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